CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

On January 1, 2011, Olympic Insurance Company granted 30,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2013 and expire on January 1, 2016. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. The market price of Olympic's stock was as follows:

January 1, 2011: $14.
December 31, 2011: $15.

If Olympic does not choose the FASB's elective accounting approach, what amount should Olympic recognize as compensation expense for 2011?
Correct Answer: $20,000

Total compensation [($14 - 12) x 30,000] / vesting period (3 years).

User Contributed Comments 2

User Comment
HenryQ Intrinsic value...FASB requires fmv.
quanttrader intrinsic value approach
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